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 Richmans' Trade and Taxes Blog

Roger Altman may replace Lawrence Summers
Howard Richman, 11/29/2010

According to news reports, President Obama may soon pick Roger Altman, a former Deputy Secretary of the Treasury under President Clinton, to replace Lawrence Summers as his chief economic advisor. I just listened to an hour long July 2009 interview that Charlie Rose had with Altman, you can watch it here:

The good news is that Altman is a budget deficit hawk. More good news is that he thinks the higher U.S. private savings rate is a good thing because it will help long-term growth. Maybe he will bring some long-term thinking to the U.S. government.

The bad news is that he doesn't understand mercantilism. He thought that the trade deficits would stay down after the November 2008 crash. He did not foresee that our trade deficits would shoot up and stifle the recovery because the Asian nations would increase their mercantilist predations. He did not realize that China intentionally keeps its people's savings high by denying them credit....


Comments: 1

Program for economic recovery and 2012 victory -- we're published in today's American Thinker
Howard Richman, 11/27/2010

Here's how we conclude:

In 2010, voters rejected the Democratic Party's borrowing from China to finance growing budget deficits. In 2006 and 2008, they rejected the Republican establishment's unilateral free trade, which shipped good-paying jobs abroad. They will continue to hold incumbents responsible for the disastrous economy that results from tolerating trade deficits.

But a Republican Party that advocates balanced budgets and trade, replaces oil with natural gas, and abolishes the corporate income tax would fix the economy and be unbeatable at the ballot box.

Follow the following link to read it:


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D.J. McGuire: Obama may be "best-equipped American leader to take the CCP on"
Howard Richman, 11/24/2010

In a November 23 commentary (Is Beijing Using North Korea Again?) D.J. McGuire argues that President Obama is uniquely qualified to get tough with the CCP, China's Communist Party:

Nixon’s fervent anti-Communist history made him practically the only American politician who could reach out to the CCP. Conversely, Obama’s left-wing history may make him the best-equipped American leader to take the CCP on.

President Obama has already started taking a tough stance with China. McGuire notes:...


Comments: 2

Obama and the House can produce Economic Growth
Howard Richman, 11/22/2010

Ironically, divided government gives the United States an excellent chance to solve its economic problems. Although the Democrats may be unable to balance budgets and the Republicans may be unable to balance trade, together they may be able to do both. All that is needed is for each party to do what it has the power to do.

Republicans Can Balance the Budget

In the last election, the American people spoke. The Republicans were given the House with a mandate to move the federal budget into balance. The American people will no longer put up with reckless borrowing from our children.

The Republican House has the power to balance the budget, without any cooperation needed from the Democratic Senate or President. They can do so simply by refusing to raise the debt ceiling. That would force serious negotiations about where to cut federal spending.

But doing so could cause even higher unemployment than we have now. In his commentary that appeared in TheStreet (Chinese Mercantilism is Making a Mess), U. of Maryland economist Peter Morici predicts that moving the budget toward balance would cause 15% unemployment, unless direct action is taken at the same time to move trade into balance. Morici calculates:...


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Paying the Piper
Jesse Richman, 11/19/2010

When countries run large current account deficits they accumulate debt in one form or another.  And this debt can later cause serious economic harm.  The graph below compares the growth rates of countries that ran large average current account deficits (more than five percent of GDP) in the 2002 to 2007 period with growth rates for countries that ran large current account surpluses during this period (more than five percent of GDP). 

 For the 2002 through 2007 period there are differences -- the average growth rate was higher for countries with surpluses.  The differences are even more pronounced in the 2010 growth estimates. 



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Bernanke on China
Howard Richman, 11/19/2010


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Gordon Chang: China is not making the transition to a consumer-led economy
Howard Richman, 11/18/2010

Writing in Business Week on November 15 (China Offers No Chance of Revaluation before 2012), Gordon Change takes an honest look at what China is doing. He writes:

Analysts love to say that China is making the transition to a consumer-led economy. But such assertions aren’t consistent with the facts or common sense. The steps that the central government is taking to create trade surpluses -- such as holding down the value of its currency -- inevitably discourage consumption. The government’s stimulus program, which focuses on building infrastructure and industrial production, is also, by definition, anti-consumption....


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With No Program for Economic Recovery, the Republlicans Will Lose in 2012
Raymond Richman, 11/16/2010

Now is the time for all good Republicans, including Tea Partyers, to come to the aid of their party and their country!  With 9.6 percent unemployment – really more than twice that if you count those who dropped out of the labor force and those unwillingly reduced to part-time jobs --  Pres. Obama and the Democratic Congress spent -- no, wasted! -- his first two years in power occupied by domestic issues whose resolution should have been postponed until the economy had recovered. The issue that wasted the most time was health care. Republicans may want to repeal or amend the health care bill but if they do, they will waste another year and a half (and predictably won’t change it much) with no reduction in unemployment. Unemployment can be expected to increase, not decrease. And Republicans will suffer the same fate as the Dems did in the recent elections.

What did the Democrats do wrong that caused their tremendous loss of public support in just two years?

 The Democrats passed Pres. Obama’s Recovery Act of 2009,  his $800 billion dollar plus economic stimulus plan but which, for all practical purposes, did not create any  new jobs although it may have preserved the jobs of supporters like the teachers that belong to the NEA and other unionized government employees. It financed the “klunkers” program which provided a temporary increase in auto sales. It had no lasting benefit. The Recovery Act  financed investments in so-called “renewable” energy sources like windmills and solar but which are so expensive that, even with the subsidies they raise the cost of electricity. We learned nothing from the earlier Spanish experiment with alternative energy which proved how uneconomic and unsustainable alternative energy sources really are. They will require continuous subsidies over their whole lives and will hit consumers in two ways, higher energy prices and higher taxes.  

The President acting like Venezuelan dictator Hugo Chavez, arbitrarily took over General Motors, causing the loss of thousands of jobs of workers producing Saturns and Pontiacs. In bankruptcy, those cars would still be being produced but with new owners. As a result, GM became known as Government Motors with the automobile union as co-owner. ...


Comments: 2

QE2 could becomeTitanic2
Howard Richman, 11/14/2010

“QE2” are the initials of the Queen Elizabeth 2, a great ocean liner which was the sequel of a great ocean liner. They are also the initials of “Quantitative Easing 2,”  Federal Reserve Chairman Ben Bernanke’s second huge increase in the United States money supply. Although QE1 was a huge success, QE2 could end in disaster. If so, it may be renamed “Titanic2,” after another ocean liner, one that sank. 

QE1 restored liquidity to the U.S. money supply during and after the October 2008 financial crash.  The extra liquidity provided by the Fed let American banks lend short term so that businesses could meet payrolls and buy inventory. As part of the QE1 package, Bernanke even made currency swaps with fellow central banks, which made dollars available around the world to foreign businesses whose debt payments required dollars. QE1 was Bernanke at his best.

QE2 is designed to reduce American private savings and also to cause private foreign savings to flee from the United States. Its goal is to increase inflation from its current 1% to at least 2% or 3% while keeping short-term U.S. interest rates close to 0%, producing an “inflation tax” upon private American and foreign savers.

Bernanke hopes that reducing private American savings will increase American consumption and that sending private savings abroad will improve America’s trade balance. Indeed, the short-term result of QE2 will be beneficial. Consumption will increase and private savings will flee the country for better interest rates abroad. Already, the dollar has weakened versus most foreign currencies, which makes American products more competitive in U.S. and world markets.

But in the long term, Bernanke’s discouragement of American savings will reduce investment in America’s economic future and his decision to increase inflation will provide a new element of uncertainty in business decision making.

The effect upon the dollar can’t help much. It will either be temporary or disastrous, depending upon what foreign central banks do:...


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Not "Free Trade". Let's Have Balanced Trade
Raymond Richman, 11/12/2010

We have been great admirers of Prof. Walter Williams who was for a long time Professor of Economics at George Mason University. He is an admirer of Prof. Milton Friedman and so am I. Friedman was my dissertation advisor. One of the areas where I disagreed with him was in his embrace of free trade as a policy to be pursued by a government unilaterally. There is in my opinion no economic theory that justifies a policy of free trade when your trading partners are practicing mercantilism, a policy of imposing barriers to imports and subsidizing exports.

A policy of free trade can only be justified when both labor and capital and goods can move freely between trading partners. Thanks to the U.S. Constitution we have free trade between the States of the Union. And even so, States compete with one another to attract investors, offering inducements of one sort or another. There is no such thing as free trade between nations. Yet American economists are almost unanimous in encouraging the U.S. to pursue a policy of free trade. The consequences have been tragic for American industrial workers. Prof. William in an opinion piece entitled “Worry Over Trade Deficits” on November 20 which echoes the predominant economic point of view.

He writes:

At the recent Group of 20 (G 20) meeting [of finance ministers)] U.S. Treasury Secretary Timothy F. Geithner called upon the largest industrialized economies to get their current account balance — whether a surplus or a deficit — below 4 percent of their gross domestic product by 2015…. Our annual trade deficit of $500 billion is less than 4 percent of our GDP.

We do not know how Geithner arrived at four percent. In 2008, the U.S. current account deficit was $670 billion, which was 4.67 percent of 2008 GDP. We estimate that it would take 6.7 million U.S. workers to produce $670 billion of manufactured and industrial goods. Prof. Williams apparently does not believe 6.7 million workers losing their jobs is too big a price to pay for free trade in a world dominated by mercantilist policies....


Comments: 3

Geithner backtracks from his call for balanced trade
Howard Richman, 11/8/2010

With the G-20 meeting coming up this weekend, U.S. Treasury Secretary Timothy Geithner is in full retreat from his call for balanced trade in his October 20 letter to his fellow G-20 finance ministers. He now says that he was just talking about a general framework that could possibly, someday, perhaps, maybe, lead to "warning indicators" that countries would not have to pay any attention to. Here's what he said specifically, according to Reuters:

Geithner reaffirmed a G20 plan to limit current account surpluses and deficits does not contain numerical targets, which he called economically unfeasible. Several countries had objected to suggestions that such imbalances be limited to around 4 percent of gross domestic product.

"What we have proposed is a framework which incorporates early warning indicators of large surpluses or deficits which can then be monitored," Geithner said.....



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Book Review: Trickle Up Poverty by Michael Savage
Raymond Richman, 11/7/2010

This is an extraordinary book that exposes Pres. Barack Obama’s policies to fierce and justified criticism. Michael Savage argues that Pres. Barack Obama has deliberately failed to secure our borders and seeks amnesty for the millions of immigrants who entered the U.S. illegally. He has weakened the U.S. militarily by signing a one-sided nuclear treaty with Russia and conceding Russian leadership in space. He has done nothing to reduce our trade deficits which have cost American workers millions of good-paying jobs in manufacturing.

He begins by noting that Barack Obama was unqualified for the position of President of the United States, that he had no experience in government administration and only a very brief tenure in the Senate of the U.S. In both the Illinois and US Senate, he often voted “present”. And worse, that Obama believes in the “failed Sugarplum Fairy fantasies of Leninism and Marxism.”

He writes about Obama’s Marxist-Leninist Roots: … for decades Obama has had ‘friendly associations with communists and terrorists …Frank Marshall Davis in his youth in Hawaii to communist terrorists Bill Ayers and Bernardine Dohrn in Chicago.” He writes: “Contrary to what Marx taught and Obama believes, spreading the wealth around impoverishes us …Taking money from you and me to give to someone who is looking only for a handout, a bailout, or a way out, removes our incentive to excel, to grow, to risk investment, to invent, and to dream big dreams.” ...


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The Employment Report Portrays a Dismal Outlook For the Economy
Raymond Richman, 11/6/2010

The US Bureau of Labor Statistics released employment data for October, 2010 which received considerable media attention and a televised comment by President Barack Obama. They cited the report’s data that showed total private nonfarm employment increased by 159,000 over September, 2010. Unfortunately, no one in the popular media to my knowledge bothered to report the composition of the increase.

There was a net increase of only five thousand (+5,000) employees in the production of goods. There was an increase of seven thousand (+7,000) in mining and five thousand (+5,000) in construction, but a reduction of seven thousand (-7,000) in manufacturing, leaving a net increase of only five thousand (5,000) employees in the production of goods.

Of the remaining 154,000 jobs created, 27,900 were in retail and 7,300 in wholesale trade, 46,000 in professional and business services (including 34,900 in temporary help services), 53,000 in education and health services, 25,000 in other services, a reduction of five thousand ( -5,000) in leisure and hospitality, and two  thousand one-hundred (-2100) in financial and information services. There was no growth in employment in transportation and warehousing. ...


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Obama's Failing Industrial Policy
Howard Richman, 11/5/2010

In October, U.S. manufacturing employment declined for the third straight month while overall unemployment remained unchanged at 9.6%. The graph below shows the number of workers employed in U.S. manufacturing since January 2008:


President Obama has pinned his hopes for a manufacturing revival upon industrial policy, the idea that government bureaucrats should pick the companies of the future and subsidize them. His Export Promotion Cabinet is supposed to manage this policy. But the latest anecdotal report, from the Oakland Tribune, explains why it is not working:...


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Just-elected Republican Congressman Allen West from Florida calls for tougher stance on Chinese trade
Howard Richman, 11/4/2010

Here is the relevant portion of Allen West's radio-show interview with Congressman-elect Allen West:...


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Message from the People of Kentucky: America's Problem is Debt
Howard Richman, 11/3/2010

Victorious Kentucky Senator-elect Rand Paul eloquently summarized the message of his election in his victory speech on Tuesday. America's problem is debt.

He is correct. First came excess consumer debt, which spread to include bank debt when houses fell in price, which spread to include government debt when the Bush and Obama administrations tried to stimulate the economy while letting the trade deficits expand. Here's what Rand Paul said:

If you watch to the end, you'll see the snide sophisticated CNN commentators pretending that Paul is a madman threatening to cause a worldwide depression. But Rand Paul is right and Washington is wrong.

There is a simple recipe for both short-term and long-term growth. Balanced Trade Monetarism simply requires: (1) balanced budgets, (2) balanced monetary growth, and (3) balanced trade.


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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]